The Gold Price Inverse Head-And-Shoulders Pattern Is Classic
(Source: forbes.com)

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(Original link: forbes.com)

You don't need an algorithm to identify the classic chart formation known as a head and shoulders pattern or its twin sister, the inverse head and shoulders pattern -- sometimes known as the reverse head and shoulders pattern. You don't need artificial intelligence nor a computer science degree nor even a Masters of Business Administration from a fine school. All you need is a price chart, old school technical analysis and a sense of what might be possible given the odds.
Robert Edwards and John Magee identify the characteristics in their classic work Technical Analysis of Stock Trends . If you're unfamiliar with the formation, you can read about it here at the Stockcharts.com Chart School .
One of the best trades to make just before the 2008 financial crisis -- known to Wall Street types as "the Great Recession" -- would have been heavily into gold or gold-related assets. Here's how the chart looked back then:
Gold price, monthly chart. stockcharts.com
While most other stocks tanked, many precious metals equities had a good time. If you believe that we may be approaching another recession, you're probably beginning to take a look at miners.
Up until recently, this sector has performed poorly, to put it mildly -- but the charts might be suggesting that something different is developing. You never know, of course, as cryptocurrency investors have discovered over the last 12 months. Lately, precious metals stocks have stopped going down and what appears to be an inverted head and shoulders pattern has formed on the gold mining index. Here it is:
Gold miners ETF index price chart, daily. stockcharts.com
You can see how the long and relentless decline from the beginning of the year into September has stopped -- or perhaps just paused. It remains to be seen what might develop but it's clear that a classic Edwards and Magee head and shoulders chart pattern has unfolded here.
This is also true for the ETF index that tracks the "junior" miners -- those smaller, less capitalized outfits that may offer greater reward in return for taking the greater risk involved. The prices tend to be more volatile but trend similarly. Here's that chart:
Junior miners ETF index, daily price chart. stockcharts.com
Looking for further confirmation of the precious metals look, the price chart for silver seems to indicate a positive correlation:
Silver price chart, daily. stockcharts.com
Since there is no silver "juniors" index, here's a look at an individual small silver miner, Americas Silver Company. It trades on tiny volume relative to the larger NYSE-traded gold miners -- but the chart shows the inverse head and shoulders pattern even at this level of the industry.
USAS daily price chart. stockcharts.com
Whether this classic technical price pattern plays out as a reversal signal remains to be seen, but it's clearly making its presence known in the metals arena.
A lot of factors are different now than in 2008 -- for example, cryptocurrencies were basically non-existent. How much that might affect investment allocation decisions these days remains to be seen. This is not to mention the difference now in interest rates, the price of oil and a different kind of Presidency.
Nonetheless, anytime a clear head and shoulders pattern emerges in the precious metals area, it's probably worthwhile to take note of it.
I do not hold positions in these investments. No recommendations are made one way or the other. If you're an investor, you'd want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor....

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